Business sentiments worse than reality: Adi Godrej

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The Indian economy and businesses are passing through difficult times due to lack of reforms and governance, but the sentiments are even worse than the reality, said Adi Godrej, chairman of the Godrej Group.

"The sentiment is even worse than the reality. Of course, the reality is also not good but the sentiment is even worse," Godrej, who took over as the new president of the Confederation of Indian Industry (CII) on April 18, told agencies in an interview.

He said the growth slowdown, lack of reforms, corruption and growing concerns over governance had dampened business sentiments.

"We would like the government to work, to see that the sentiment improves. Then we should work together to improve the reality," he said.

Godrej said the proposed retrospective tax amendments and general anti-avoidance rules (GAAR) have made the sentiments even worse.

"The retrospective tax amendment has created a negative sentiment. It is not a good move at this point of time. This is going to hurt the country," he said.

In the 2012-13 Union Budget presented in March, Finance Minister Pranab Mukherjee proposed to amend the Income Tax Act, 1961, retrospectively to allow authorities to tax global merger and acquisition transactions involving Indian assets and shares.

Godrej said the CII and other industry associations had urged the government to avoid such kind of moves, since it would affect both foreign and domestic investments.

"If you tell someone that these are the benefits of investing in India and then you take it away, it is not fair," he said. The CII had given a representation to the finance minister requesting him to avoid the amendment.

The CII's new office-bearers, Led by Godrej, also called upon Prime Minister Manmohan Singh last week to take up the concerns of the industries.

Godrej said the CII would work with the government to improve the business environment and revive the sentiments.

He said reforms such as the Direct Tax Code (DTC), Goods and Services Tax (GST), Companies Bill, and implementation of the National Manufacturing Policy would help uplift sentiments and bring the economy back to the over nine-per cent growth path.

"GST can be the single-most important reform after 1991. It has the potential to add 1.5 to 2 percentage points to India's GDP (gross domestic product) growth," he said.

Godrej said India's economic growth was likely to remain around 7.5 per cent in the current financial year. However, it might accelerate to around nine percent if major reforms were implemented, he said.

India's GDP is estimated to dip to 6.9 per cent in 2011-12 as compared to 8.4 per cent in the previous year.

Godrej said lowering of interest rates by the Reserve Bank of India (RBI) would help revive growth and business sentiments to some extent.

However, he suggested that the central bank should lower key policy rates by at least 100 basis points (one percent) further to give a substantial push to industrial growth and investments.

The RBI in its annual monetary policy for 2012-13 announced on April 17 a cut in key policy rates by 0.50 per cent. This was the first rate cut by the bank in three years.

On corruption, Godrej said a multi-pronged strategy was needed to curb the social menace.

"I don't believe corruption will come down only because of punishment and exposure. Corruption will come down when the reasons for corruption come down. So transparency must be brought in. Any sale or purchase by the government should be done by proper and open tenders," Godrej said.